Current through Register Vol. 48, No. 38, September 20, 2024
a)
Any
purchaser who makes a monetary payment to a producer for his or her portion of
the value of oil and gas from a production unit shall withhold from that
payment the amount of tax due from the producer. Any purchaser who pays any tax
due from a producer shall be entitled to reimbursement from the producer for
the tax so paid and may take credit for that amount from any monetary payment
to the producer for the value of the oil and gas. To the extent that a
purchaser required to collect the tax imposed by the Tax Act has actually
collected that tax, the tax is held in trust for the benefit of the State of
Illinois. [
35 ILCS
450/2-25]
b) Withholding of Tax by Purchasers
1)
The tax imposed by the Tax Act is
upon the producers of the oil or gas in the proportion to their respective
beneficial interests at the time of severance. The first purchaser of any oil
or gas sold shall collect the amount of the tax due from the producers by
deducting and withholding that amount from any payments made by the purchaser
to the producers and shall remit the tax imposed by the Tax Act to the
Department. [
35
ILCS 450/2-30(a)]
2)
The first purchaser is required to
withhold and remit the tax imposed by the Tax Act to the Department from the
oil and gas purchased from the production unit unless the first purchaser
obtains from the operator an exemption certificate signed by the operator
stating that the production unit is not subject to the tax imposed by the Tax
Act.
A) Wells Drilled Prior to July
1, 2013
i) For production units containing
wells drilled prior to July 1, 2013 and from which the first purchaser
commences purchasing oil or gas on or after January 1, 2019, the exemption
certificate must include the following information:
* name and address of the operator;
* common name of the production unit and the number assigned to
the production unit by the prior first purchaser;
* a statement by the operator that he or she will promptly
notify the first purchaser in the event that the well becomes subject to the
tax imposed by the Tax Act; and
* a statement by the operator that the production unit is
exempt from the tax imposed by the Tax Act.
ii) The first purchaser shall maintain in its
books and records the legal description of each production unit identified in
the exemption certificate. The operator may provide, and the first purchaser
may accept, one exemption certificate containing the name of the operator, the
common names and numbers of all the production units, and the statements
required by subsections (b)(2)(A)(i), third and fourth bullets.
B) For wells drilled on or after
January 1, 2019,
the exemption certificate must include the following
information:
i)
name and
address of the operator;
ii) common name of the well
on the permit issued by DNR;
iii)
number assigned to the production unit by the first purchaser, if
available;
iv)
legal description of the production unit;
v) well reference number on the permit issued
by DNR;
vi) a statement by the
operator that he or she will promptly notify the first purchaser in the event
that the well becomes subject to the Tax Act; and
vii)
a statement by the operator that
the production unit is exempt from the tax imposed by the Tax Act. [
35
ILCS 450/2-30(b)
]
3) An
operator must promptly notify the first purchaser in the event that a well
certified as exempt from the tax imposed by the Tax Act becomes subject to
tax.
4) The purchaser is not
required to obtain a new exemption certificate if the operator providing the
exemption certificate to the purchaser assigns or transfers operations and
management of the well to a new operator.
5)
If a first purchaser obtains an
exemption certificate that contains the required information and reasonably
relies on the exemption certificate and it is subsequently determined by the
Department that the production unit is subject to the tax imposed by the Tax
Act, the Department will collect any tax that is due from the operator and
producers, and the first purchaser is relieved of any liability [
35
ILCS 450/2-30(b)] . During any
determination by the Department of whether the first purchaser reasonably
relied on an exemption certificate, the Department will inquire whether the
purchaser had any information or knowledge that would lead a reasonable person
to believe the statement provided by the operator that the production unit is
exempt was false. If the Department provides a purchaser with a lien in the
amount of any assessment for underpayment of tax, penalty and interest, the
purchaser shall suspend payment of oil or gas proceeds from the well to the
producers until such time as the purchaser receives a release of lien. A
purchaser shall also honor any levy issued to it to collect amounts withheld
pursuant to a lien. The Department retains all other legal remedies to collect
the underpayment from the producers.
6)
When the title to any oil or gas
severed from the earth, soil, or water is in dispute and the
purchaser of that oil or gas is withholding payments on account of litigation,
or for any other reason, the purchaser is hereby authorized, empowered, and
required to deduct from the gross amount thus held the amount of the tax
imposed and to make remittance of the tax to the Department as provided in the
Tax Act [
35
ILCS 450/2-55] .
7) If a purchaser purchases oil or gas from
an operator or person claiming to be acting as a purchaser for purposes of the
Tax Act, or the operator or person requests payment for 100% of the value of
the oil or gas without withholding the tax imposed by the Tax Act, the
purchaser shall obtain a written withholding certification from the operator or
person for each well or production unit from which oil or gas is removed,
subject to the tax imposed by the Tax Act.
A)
The withholding certification shall contain the following information:
i) name and address of the operator or
person;
ii) common name of the well
on the permit issued by DNR;
iii)
number assigned to the production unit by the operator, if available;
iv) legal description of the production
unit;
v) well reference number on
the permit issued by DNR;
vi) the
certificate of registration number obtained by the operator or person from the
Department under Section 475.160; and
vii) a statement by the operator or person
stating that the tax imposed by the Tax Act will be withheld and paid by the
operator or person.
B)
The purchaser shall maintain the certification in its records. The purchaser is
prohibited from paying 100% of the value of the oil or gas removed from wells
subject to the tax imposed by the Tax Act to any operator or person without
withholding the tax imposed by the Tax Act unless the purchaser obtains from
the operator or person a certificate of registration number issued by the
Department under Section 475.160. A withholding certificate is not required if
the oil or gas purchased from the wells or production units by the purchaser is
not subject to the tax imposed by the Tax Act.
c) Withholding of Tax by Operators
1) The tax imposed by the Tax Act is upon the
producers of the oil or gas in proportion to their respective beneficial
interests at the time of severance. Any operator who makes a monetary
payment to a producer for his or her portion of the value of products from a
production unit shall withhold from that payment the amount of tax due from the
producer. Any operator who pays any tax due from a producer shall be entitled
to reimbursement from the producer for the tax so paid and may take credit for
that amount from any monetary payment to the producer for the value of
products. To the extent that an operator required to collect the tax imposed by
the Tax Act has actually collected that tax, the tax is held in trust for the
benefit of the State of Illinois. [
35 ILCS
450/2-50(c)] (See Section
475.135(b).)
2)
When the
title to any oil or gas severed from the earth or water is in dispute and the
operator of the oil or gas is withholding payments on account of litigation, or
for any other reason, the operator is hereby authorized, empowered and required
to deduct from the gross amount thus held the amount of the tax imposed and to
make remittance of the tax to the Department as provided in this
Section [
35 ILCS
450/2-50(e)] .